Money is called the most liquid of all assets because it:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → is universally acceptable and easily exchanged for other goods
An asset is liquid when it can be turned into other goods easily. Everyone accepts money, so it can be exchanged at once. That makes money the most liquid of all assets.
Option (1) is a flow variable measured over a period of time — Incorrect. Money is a stock held at a point of time.
Option (2) has intrinsic value, like a gold or silver coin of the same value — Incorrect. Notes and coins are fiat money with no intrinsic value.
Option (3) earns interest when it is kept in a fixed deposit with a bank — Incorrect. Holding money gives up interest. That is its opportunity cost.
Option (4) is universally acceptable and easily exchanged for other goods — Correct. This is what liquidity means.
NCERT (2026-27): “Box 3.1: Demand and Supply for Money : A Detailed Discussion Money is the most liquid of all assets in the sense that it is universally acceptable and hence can be exchanged for other commodities very easily. On the other hand, it has an opportunity cost. If, instead of holding on to a certain cash balance, you put the money in a fixed deposits in some bank you can earn interest on that money. While deciding on how much money to hold at a certain point of time one has to consider the trade off between the advantage of liquidity and the disadvantage of the foregone interest. …” “Legal Definitions: Narrow and Broad Money Money supply, like money demand, is a stock variable. The total stock of money in circulation among the public at a particular point of time is called money supply. …” |